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First and foremost, Ukraine needs a rule of law, so judicial reforms need to be passed. Everybody knows that every single judge in Ukraine is corrupt, and most of them need to be changed, Aivaras Abromavicius, Minister of Economic Development and Trade of Ukraine, told EurActiv in an exclusive interview.
Aivaras Abromavicius is a Lituanian-born manager and investment banker who became Ukraine’s Minister of economy on 2 December 2014.
He was speaking to EurActiv’s Senior Editor Georgi Gotev.
Minister, can you first introduce yourself? Your name indicates that you are originally from Lithuania, but you are the minister of the economy of Ukraine.
That’s correct. My name is Aivaras Abromavicius and I am now the 25th minister of the economy of Ukraine. I was born in Lithuania, which I left when I was 17 years old. I lived 6 or 7 years in Estonia, a little while in the USA, 6 or 7 years in Sweden and 3 years in Moscow, in Russia. The last 6 years I have been living in Ukraine. I am from investment management. I have never been in administration, but I have been managing assets on behalf of clients from continental Europe, the USA, the Middle East, and investing them in Eastern Europe for the last 18 years. I am very new to public administration, but I have been investing in businesses in the region long enough to understand what business needs in terms of improvement in governance, so I think we have a lot of interesting times ahead.
Interesting and challenging... How would you describe Ukraine’s economy, starting from the fact that unfortunately Crimea is under Russian occupation and the government cannot control part of the territory in the eastern part of Ukraine?
Indeed, myself and the other ministers come into government at a very challenging time for Ukraine. We have two major challenges and threats lying ahead of us. First is Russian aggression in the east and in Crimea, and second is the weak economic conditions that Ukraine is experiencing right now. But our team is very much pro-reform and ready to act fast. It understands that it has a unique opportunity to do radical reforms now. Ukraine has been talking about it for 23 years and not much has been done, but now that the international community strongly supports Ukraine, that the local population and businesses are keen for more action rather than talk, and are ready to take more hardship in exchange for real results, we have a composition in the cabinet of ministers that is allowing us to carry out reforms, and we hope that we have a good parliament that will accept the new changes and new laws that we will push through the parliament.
I read that Ukraine has lost 20% of its economy because of this war that has not been declared, but is still ongoing. Is this assessment correct?
Well, the numbers still need to be finalised, but it is clear that the part of Ukraine that is temporarily occupied is very heavily industrialised. However, I think the numbers you mentioned are not entirely correct because parts of Donetsk and Luhansk are under the control of the Ukrainian army. Mariupol for example is a major port with two large steel plants and a number of other heavy machine-building plants that account for some of the largest industrial bases in Donestk.
What are the key reforms that the economy needs? Now you are in Brussels and Prime Minister Yatsenyuk has appealed for massive economic help, which always comes with some conditions, and the promise of reform.
Absolutely. First and foremost, Ukraine needs a rule of law. So judicial reforms need to be passed. Everybody knows that every single judge in Ukraine is corrupt and most of them need to be changed. Judicial reform comes first. Then obviously we have other reforms like police reform, we need electoral reform, and when it comes to my part, related to the economy, Ukraine has a lot to do here. First and foremost we need to reform the biggest Achilles heel of the Ukrainian economy: Naftogaz Ukraine.
The Naftogaz deficit is equal to 9% of Ukrainian GDP, so we are committed to raising tariffs to market levels and then compensating the poorer half with about 2% of GDP. Second, when it comes to the economy, we have been seeing a situation where big businesses have been benefiting from unfounded preferential treatment for their activities for years, so we have to de-monopolise our economy.
We are committed to making level playing fields for all businesses. In exchange we will deregulate as much as possible. All kinds of agencies regulate things that it is not necessary to regulate – licencing which does not conform to European standards etc. so we are committed as a first step to submit a good amount of laws to the government and the parliament, starting this year, with regards to regulation. Deregulation is where government and businesses come together. As a great reformer, Kakha Bendukidze [the late Georgian statesmen] said once, “whenever business and government come together, there is some room for corruption”.
There is rarely corruption between two private entities, so we need to decrease the state’s involvement in the Ukrainian economy by cutting a lot of regulating agencies, liquidating them, merging some of them to make sure business has some breathing space. So what we say to business is that you have to play by the rules, you have to be honest and pay taxes, but we will make sure that government intervention in your business is minimised, and eventually your asset prices will go up. Also what is important under my ministry is state procurement.
Almost 10 billion dollars worth of tenders are organised every year. If we make the system more transparent and more efficient and more competitive, we estimate that savings could reach 20%, which is 2 billion dollars. The draft law will be submitted either late this year or early next year, to make things work in the direction of electronic tenders. Also, state-owned enterprise reform is under my ministry. In Ukraine, we have approximately 3,300 state-owned enterprises. They run at huge losses for the country. We have a huge amount of debt, which is also a risk to the banking sector. Many of them are run as private companies, and a lot of money is being siphoned away from them, so here we are also planning major reforms in how these companies are run: massively improving corporate governance standards, independent board members, and obviously auditing all the biggest companies as soon as possible.
In several countries in Europe, governments say that they have suffered losses because of the EU embargo on Russia. This must be even truer of Ukraine. How do you estimate the losses to your country because of the current state of relations with Russia?
Yes, again the numbers have not been finalised, but it is very obvious that Russia has been a very important export destination for a number of Ukrainian goods. Russia, however, has always been very protectionist, so there was always a risk of Ukrainian goods being stopped at the border for whatever reason. And now we see that the Russian economy is also very weak. The Rouble had a historic drop yesterday, and later in the evening, interest rates hit 17%. Russia is obviously in a very turbulent economic situation. So it is very timely that Ukraine has devoted more exports to the EU. We do expect more help from the EU, to make the best out of our comprehensive trade agreement so that more Ukrainian goods can flow this way and we can teach Ukrainian companies about things like certification and so on so that they find markets in EU countries.
But in the long run, do you hope to recover your normal economic relations with Russia?
Absolutely. We all want to live in a peaceful world, so we would hope that one day we would be able to trade with all the partners around the world, including Russia. Right now we face military aggression from them and the situation is much more complicated